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The changes waiting in the wings for planners in 2019

At times last year it felt like 2018 was a headlong rush towards certain doom.

The FTSE 100 closed around 12.5 per cent down on the year, the worst performance for a decade. And with the new 24/7 remake of The Thick of It that is Brexit, you’d have to be brave to predict anything else in terms of market performance for at least the foreseeable future. Strap yourself in, it’s going to be a bumpy ride.

However as everyone knows, it’s difficult to make predictions about the future. At The Lang Cat we prefer to deal in hard facts and use these to inform our views as to where the advice profession and all those who serve/ depend on it might be heading.

Our most recent adviser research paints a mixed picture. There is an awful lot for advisers to be positive about, but also a few potential headwinds that, if not addressed, could cause some pain in the future.

Data from the FCA shows the advice market to be increasingly buoyant and stable, busting a number of myths along the way.

There are approximately 14,500 firms in the UK, with 25,000 advisers. This has been stable since the RDR, with firm growth running at around 2.4 per cent annually.

Considering the activity around mergers and acqusitions and exits we have seen this is pretty remarkable, and kills the pre-RDR myth that the reforms would drive firms out of business.

Another myth firmly kicked into touch is the one that most advice firms are around one bad month away from going out of business.

Yet the truth is 99 per cent of firms hold more than the minimum capital requirement, with over a third of advice firms holding at least six-figure sums in reserve. Advice firms are increasingly confident in their propositions and are well capitalised to boot.

The potential pain to come

Sadly, it’s not all good news.

It’s true that revenues for investment business are up and have been growing consistently since the RDR at an average of £684,000 per firm and £143,000 per adviser. However profits as a percentage of revenue have been falling over the same period, and currently sit at around 15 per cent.

One of the questions we asked was: “If you could change one thing about financial services, what would it be?”

The top three responses covering around 75 per cent of all answers were regulation, adviser behaviour, and technology. Adviser behaviour is a topic for another day, but increasingly we see regulation and technology as issues that go hand in hand.

If profits are starting to decline at advice firms then regulatory costs, both direct and indirect, seem an obvious area to blame. 12 months ago I wrote in this very place about how Mifid II had the potential to increase the cost of delivering advice due to increased suitability and disclosure requirements.

It’s too early to say I told you so, but many firms we speak with are looking to move away from advisory model portfolios to outsourced solutions, and/ or invest in technology to make the process more efficient.

And just when you thought it was safe, Mifid II could have another sting in its tail.

Over the coming months, every platform will be writing out to clients reporting the total charges they have paid over the last 12 months. Investment costs, platform charges, advice fees - everything will be laid bare in pounds and pence.

It will be interesting to see how clients react to this new disclosure, especially if the market volatility continues. However it does introduce yet another new piece of regulation for advisers to deal with.

With most platforms sending out these notifications directly to clients the good news is advisers will have very little to do to meet the requirements, but you will still need to take steps to ensure the client relationship is maintained. You can find details of how most advised platforms are approaching this on our website.

So as the song (kind of) goes, it’s a new year, new dawn, new day, and I’m feeling good.

The advice profession has a lot to be positive about in 2019, and if your glass is half full the new Mifid disclosures will allow you to demonstrate the value of your advice and shine a light on elements elsewhere who are, perhaps, not delivering such good value.

If advice is truly is a profession rather than an industry, then continuous challenge and introspection is a good thing.

For many advice firms, against the backdrop of recent successful years, 2019 should be the year to look at how your business is being run, and ensuring the technology and platform(s) being used are delivering the best outcomes for your business and your clients.